online investing
March 4, 2006 12:03 PM   Subscribe

Investment filter: I just got my tax return and I'd like to keep it for a rainy day, but not in my checking account earning 0.00001% intrest or whatever. I'd like to invest it online. What online service should I use, and what should I invest in?

Let me try to describe my situation. I've got about $1,000 I'd like to save, and my plan is to invest it online. My mom uses Scottrade, which where the trades are $7, and she's pretty happy with it. Obviously the lower the price the better, but I'd like a site with a good reputation and service. I'd like to be able to get the money back out quickly in case of emergency, and of course put more money in each month (i.e. use this is as a savings account, but with some risk)

What I'd like to do is invest in maybe 3-4 stocks, and let them sit so I don't waste too much money in brokerage fees. Do some online investment sites let you have a few trades free each month, or when you sign up?

What I'd like to do is just get a few internet/tech stocks that I can feel confident in and not pay too much attention too. Is Google a still a good buy? What about Yahoo? They seem to be doing some interesting web 2.0 things thing (like buying flickr and del.icio.us) but are those things just minor blips in on it's bottom line?

How are Sun, AMD, and IBM doing these days? Is there some up-and-comer (like the new Cisco or MS) that I should be thinking about? I really have no clue.
posted by delmoi to Work & Money (29 answers total) 3 users marked this as a favorite
 
Sorry, if i'm off track in my answer but i'm just getting to the point where i'm starting to take steps in investments so maybe I can offer something to consider.

My gf's ex co-worker has finally moved into his career of financial planning and investment and he's now our "investment dude".

I'm 24 so I'm young enough and able to take some higher risks for a bigger return. But I also think that I really need to start paying into an IRA (individual retirement account) since my work doesn't offer a 401k. So basically i'm going to start paying a small amount into an IRA each month (think $50).

When we meet next we're going to discuss an open savings account as well as mutual funds in which we can also pick and choose what we want to invest our money in. While this is probably more investing than you are considering, you might want to think about it.

Maybe you already have a 401k or IRA but if not you can start one right now and still put a decent amount into some stock. While I'm an idiot when it comes to what to invest in, that's why I now have an "investment dude" to help me along. Maybe you can call someone local to advise you? As far as I know they are free, work off of commision. At least our guy does.

sorry if the answer wasn't what you were looking for.
posted by freudianslipper at 12:18 PM on March 4, 2006


Best answer: Though it sounds like you are more set on stock trading ING Direct offers great, higher interest savings accounts. You could throw your money in there until you find something suitable to invest in.

They are currently offering 4.75% on anything until April 15. After that it will fall to 3.80%, which is far better than you will receive from most banks. I've been with them almost a year now (joining when the interest rate was 2.80%) and have nothing but good things to say.

They also offer other investment options such as CDs, Mutual Funds, and IRAs.
posted by bwilms at 12:27 PM on March 4, 2006


ING Direct offers only their own brand of mutual funds, AFAIK. This may be OK - i've not looked at their fund performance, so you would have to do that.

Ameritrade offered me 10 free trades when I signed up - I think they are 10.99 usually.
posted by darsh at 12:30 PM on March 4, 2006


i've also considered ING and they seem really great. i'm only going with my investment guy because it's easier for me to talk to a real person face to face. however, if you know a bit about what you are doing then perhaps ING would be a good thing to consider as well.
posted by freudianslipper at 12:31 PM on March 4, 2006


Given the brokerage fees (roughly $10 a trade at places like Scottrade, or $1 a trade plus $20 a month at active-trading places like Interactive Brokers), you're gonna do a lot better in the short-to-medium term if you just put your $1000 in a good savings account. Use ING Direct for a better user interface, or Emigrant Direct for a better interest yield.

On the other hand, if you're thinking long-term (beyond the next rainy day), you should be shopping for a good IRA.
posted by rxrfrx at 12:36 PM on March 4, 2006


Best answer: With just $1,000 to invest, I'd probably just open an IRA with Vanguard and buy a passively-managed stock index fund (Vanguard has some of the lowest expense ratios around). As for individual stocks, my feeling is that it requires a significant amount of work and research to reach a proper conclusion - probably much more than would be worth spending for a $1,000 investment.
posted by mullacc at 12:37 PM on March 4, 2006


If you're not going to be actively watching and trading, just toss it all in an index fund and forget about it. An index fund inside of an IRA is an even better idea.

Alternatively, put the New York Times financial section pages up on a wall and throw darts to choose your stocks. You'll perform about as well as you would if you pick and choose carefully.
posted by tkolar at 12:42 PM on March 4, 2006


Response by poster: Hmm, isn't vanguard the one that Samuel Alito got into trouble over?

I don't want an IRA, because I wouldn't be able to get the money back out immediately if there was a problem, and I'm not exactly worried about my retirement at the moment (I'm 25)

One of the reasons that I'm interested in dabbling in the stock market is that it seems fun. I wouldn't care too much if I lost, say $200. A 10-20% return would be nice as well.

Basically I just want to enjoy this money more, and have fun with it in away that doesn't involve me not having it afterwards.
posted by delmoi at 12:52 PM on March 4, 2006


Response by poster: The reason I suggested those companies is that I generally know what's going on in the industry. And of course, I'll probably be checking the actual stocks at least once or twice a week (probably every day).
posted by delmoi at 1:05 PM on March 4, 2006


Best answer: Put that tax refund into a Roth IRA. You can take out your contribution at any time, so you'll still have access to the money. Yet you can invest in stocks and mutual funds. However, due to brokerage fees, investing in stocks is going to be pretty much hopeless if you want to be properly diversified. What I suggest is a mutual fund or an exchange-traded fund (ETF). Since you're young and can take more risk, look into one that focuses on "emerging markets." iShares has an ETF with ticker symbol EEM which is a good bet, or Vanguard's VWO, which is more diversified and has lower expenses.
posted by kindall at 1:05 PM on March 4, 2006


If you want your money to be liquid (that is you can get it when you need it), stocks are a bad choice.

Investing isn't about having fun. If you want to have fun, go to Vegas. You'll probably do about as well as you would with four stocks over a very short term.

Listen to the people telling you go get a high interest savings account or CD or Mutual fund, or get a Roth IRA -- as stated above, you can withdraw your contribution at any time. You just won't be able to withdraw profits without significant penalties.
posted by willnot at 1:42 PM on March 4, 2006 [1 favorite]


delmoi: Yeah, Alito failed to recuse himself in a case involving Vanguard, whose mutual funds he owned. I don't know if there is anything about that situation that would impugn Vanguard - the company has a pretty good reputation.

I happen to agree with you about retirement accounts - I have a 401k but it contains only about 20% of my investments. However, if I were starting from dollar zero, I'd put my first few thousand in a broad-based stock index fund through an IRA and forget about it for the next 30-40 years. Give yourself some cushion before you use starting playing around in the stock market.
posted by mullacc at 2:06 PM on March 4, 2006


Best answer: And stocks are liquid enough at the level of investment we're talking about. If you owned a 5% stake in a GE - yeah, that's not so liquid. But at only a $1,000 or so stocks are plenty liquid - especially if you use one of these low-cost discount brokers.
posted by mullacc at 2:11 PM on March 4, 2006


Picking individual stocks because you think you know the industry is a sucker bet. Over and over, rigorous studies show that dart-on-the-wall stock picking does better than "expert" pickers.

You also need to sort out your goals, because they are at odds with each other. Investing means cultivating assets that grow in value over time. Entertainment means deriving emotional value in the current moment. These are not diametrically opposed, but they do conflict.

As others have mentioned, banking options do a better job of meeting your liquidity and growth goals.

Consider high-yield money market accounts. The better ones are clustered around 4.5% interest right now. Two strong contenders for your situation:

GMAC's money Market Savings. Yields 4.6%. Needs $500 to open and avoid all fees. It allows around 5 checks per month.

Virtual Bank's eMoney Market. Also yields 4.6%. Only $100 needed to open, and after opening there are never any minimums and never any fees. You earn the full interest even on balances down to one penny, without any fees. The catch is that you can't write checks on this account. Instead, you move money via ACH transfers, which let you pull or push money to other accounts such as your current checking account with a local bank. You move money to the local bank to pay bills, while the rest sits and grows at Virtual Bank.

Both of the above institutions are FDIC insured, and both give you online access to monitor your accounts and make transactions.
posted by NortonDC at 2:40 PM on March 4, 2006


Since you say that you're more in it for the fun than for the money-making, I'll recommend Interactive Brokers. They have a pretty good trading interface (a Java-based application that runs on your computer) and web account management. Trades are $1 for the volumes you'll be playing in, and you pay $20 a month in fees unless your commissions go over $30.

As has been mentioned, to do this sort of "dabbling" in trading is about as likely to make you money as casino gambling. It's a thrill, for sure, and it's a fun way to start learning about investing, but if you want to make money and keep it for a rainy day (and a savings account is too boring), open an account at Vanguard or Scottrade and put your money in a no-fee, no-load mutual fund.
posted by rxrfrx at 3:36 PM on March 4, 2006


Response by poster:
Picking individual stocks because you think you know the industry is a sucker bet. Over and over, rigorous studies show that dart-on-the-wall stock picking does better than "expert" pickers.

Well, for the average person, maybe. But in my experience the companies that I thought would do well have done so (if I had been able to buy google a couple weeks after it IPO'd I would have 4x'd my money, for example).

Investing isn't about having fun. If you want to have fun, go to Vegas. You'll probably do about as well as you would with four stocks over a very short term.

What are you talking about? On average, gamblers lose money. On average, investors (even dabblers, I would imagine) make money.

Anyway, I guess I'll just do what all you boring people suggest, or just buy a laptop :P
posted by delmoi at 4:03 PM on March 4, 2006


delmoi writes "Well, for the average person, maybe. But in my experience the companies that I thought would do well have done so (if I had been able to buy google a couple weeks after it IPO'd I would have 4x'd my money, for example). "


"The market can stay irrational longer than you can stay solvent."
posted by mullacc at 4:23 PM on March 4, 2006


Put that tax refund into a Roth IRA. You can take out your contribution at any time.

Beware advice you get on the internets. The above statement is absolutely incorrect. You cannot take money out of a Roth IRA without penalties for at least 5 years and not before you are age 59 1/2. Two exceptions are if you become disabled or for expenses as a first-time home buyer. Otherwise you must immediately pay taxes on any investment profits and also pay a 10% penalty.
posted by JackFlash at 4:56 PM on March 4, 2006


JackFlash - you're thinking of earnings. You can take out your contribution at any time with no penalty.
posted by willnot at 5:13 PM on March 4, 2006


He said contribution and I said profits. I guess I should have been more clear. My bad.
posted by JackFlash at 6:18 PM on March 4, 2006


Well, for the average person, maybe. But in my experience the companies that I thought would do well have done so

Have all of them done well? How much of your portfolio would you have allocated to each one?

if I had been able to buy google a couple weeks after it IPO'd I would have 4x'd my money, for example

When, exactly, would you have sold to make 4x your money?
posted by Good Brain at 6:20 PM on March 4, 2006


I'm not exactly worried about my retirement at the moment (I'm 25)

The earlier you start, the easier it is. Start early and time is your friend; start late and it's your enemy.

But if you think you're going to need this money in the next couple years, find a good money market or similar offering such as those described already. Don't play the market with money you might need quickly.
posted by pmurray63 at 10:07 PM on March 4, 2006


I think the mutual fund suggestions are smart - the price you pay to have somebody else pick your stocks can pay off in the long run. I echo those recommending index funds as a good starting point, but you might also look into more aggressive small cap funds, since you are young. I use yahoo finance and morningstar to research this stuff. I also think Motley Fool does a good job in general for the individual investor.

To be slightly contrary, though, if you are interested in stocks, go for it, as long as you realize that you may lose all of your money, which can be very frustrated. You might also make some. That's the 'fun' part of the stock market.

Many financial advisers will steer you away from picking your own stocks until you have a lot of money in other 'safer' investments before essentially gambling your savings on a few individual companies, but I think if you are interested in it, then you should do it. You're young, so the things you learn about investing in the stock market now will be invaluable as you get older and, presumably, better off financially. You might only have 1k now, but in a few years, you'll probably have more money to invest. Having already dabbled in the stock market, you'll be a lot wiser having messed around with a less significant amount of money.

That said, betting on a few individual companies is very risky. Do your homework, and even then, you're at the mercy of a lot of random events. Look at Google's price the last month or so - very volatile. The stock moves significant percentages in both directions at the mere mention of a 'slow down' by their CFO. If you can stomach it, great. You might get a book or two to help you understand the market, how to read a balance sheet, some basic technical stuff, etc.

I recommend e-trade. I'm not sure what their minimum is, but they have great research tools, a bank (with checking, money market, etc.) and great customer service. I'm not sure the commission for trades at the lowest level (maybe 20 bucks?) so you might do better with scottrade, or somebody else, but my experience has been great with etrade.
posted by drobot at 9:03 AM on March 5, 2006


if I had been able to buy google a couple weeks after it IPO'd I would have 4x'd my money, for example

When, exactly, would you have sold to make 4x your money?


That's the best thing you can learn - not to fall in love with a stock. It can be tricky to know when to sell in both directions - when to cut your losses, when to take profits. Remember - don't fall in love with a stock. Good luck!
posted by drobot at 9:08 AM on March 5, 2006


Sorry, I don't mean to hog your question, but one more bit of advice with investing, especially stocks, is to learn the tax implications. With 1000 bucks, the taxes and broker fees will definitely eat into your gains.
posted by drobot at 9:12 AM on March 5, 2006


If you're determined to do stocks, I want to offer an addendum to drobot's sage advice about not falling love with a stock: Many people ask the wrong questions about stock transactions. The wrong questions are "Should I buy this stock now?" and "Should I sell this stock now?" The single right question is
"Do I want to own this stock right now?"
If the answer is "Yes," buy it or hold it. If the answer is "No," sell it or keep away from it. For the rational investor, the criteria for selling or buying are exactly the same. Hanging on to something that you wouldn't buy this instant just because you already own it is a sure sign that you're not making rational decisions about your investments.
posted by NortonDC at 12:06 PM on March 5, 2006 [1 favorite]


On average, gamblers lose money. On average, investors (even dabblers, I would imagine) make money.

Investors may, but the way they do it is boring: mutual funds, balanced portfolio.
posted by kindall at 2:57 PM on March 5, 2006


On average, gamblers lose money. On average, investors (even dabblers, I would imagine) make money.

The analogy about gambling and stock market investment still holds, in the most general sense. Gambling (the Vegas kind, not poker or private bets) has a negative expectation - e.g. for every dollar you put bet while playing blackjack, you should expect to lose X% of that over the long-run. Stock market investing has historically had a positive expectation, i.e. the market has trended up over the long-run (and, generally, it is assumed that this will continue). So the corresponding result to not losing money while gambling is to beat the market with your investing acumen.

The concepts of alpha and beta are very important in understanding the stock market. If you held a portfolio of technology stocks, that portfolio will probably have a beta north of 1 in relation to the S&P 500. If that beta was 1.5 and the S&P moved up 10% overtime, your portfolio should move up 15%. If your portfolio actually went up 17% over that time period, that extra 2% represents the alpha of your portfolio. Every hedge fund, day trader and mutual fund is trying to create alpha. The idea behind index funds is that most attempts to achieve alpha are fruitless, or worse, because of market efficiency and other factors, so you should just quit trying and put your money in a passive fund of stocks to let the market do its thing. Chasing alpha is akin to gambling because your likely outcome is that you spend time, effort and money to do the same as, or worse than, you would have if you just invested passively.
posted by mullacc at 9:18 PM on March 5, 2006


At Scottrade (the broker I use) it costs $500 to open an IRA account. Put $500 into the Roth IRA and the rest into a regular trading account. Keep contributing your $50 but split it between the two accounts every time you invest. Use the above answers to help you determine what you will invest in. This way you can have your cake and eat it too. In twenty years you'll get to laugh at your peers who are losing sleep because they spent theit $1000 tax returns on the new laptop.
posted by iurodivii at 1:27 PM on March 6, 2006


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